Do small businesses need lawyers?

Having advised and coached scores of entrepreneurs and business operators from several countries around the world, I've been struck by two things: the challenges they face are practically the same regardless of where they operate; and some of their most taxing problems could have been avoided if they had got expert legal and financial advice early and throughout their journey.

A few weeks ago, a devastated entrepreneur contacted me for help to assist with a litany of woes engulfing him after a failed business venture. Let's call him Michael.

He had partnered with a long-time friend to launch what they believed would be the ticket to their dreams of financial and professional freedom and prosperity. His partner was the ideator and innovator and Michael was the financial and operational muscle of the business. They didn't seek legal counsel before starting business and had no contract between them.

The story in a nutshell is that the business was terribly undercapitalised, the partners overestimated their ability to penetrate the market, and while they bickered over strategy and operations, the business racked up millions in losses.

Meanwhile, two of their trusted employees copied their business model, strategy and stole some key customers.

Going downhill

Michael is now on the verge of losing the property he used to secure the personal loan he took from the bank to fund the business. To make matters worse, other than the bank, he owes several other creditors, his reputation and credit score have taken a severe beating and his family is now totally reliant on his wife's modest salary.

Needless to say, it's no easy feat to offer direction and hope to a man whose ego has been crushed, confidence shaken and stressed to the point that he's lost nearly 20 pounds in a few short weeks.

Much of the advice I gave him was outlined in my column of October 6, 2013 - 'How to rebound from business failure'.

I also shared various opportunities for him to earn an income using his skills and talents and working from a simple home office. Earning is critical to working one's way out of debt.

Michael's story makes a compelling case in support of entrepreneurs needing experienced lawyers who can provide sound legal advice to protect themselves and safeguard their businesses. Michael's fortunes might have been different if he had:

1. Got legal advice before entering a partnership;

2. Had a lawyer prepare a partnership agreement that outlines the business relationship, partner obligations, how the partnership will treat business failure, debts, etc;

3. Properly booked and recorded the loans he made to the business, instead of treating the loans as shareholder equity;

4. Proper contracts in place with customers and suppliers, instead of vague agreements downloaded from the internet that have no relevance to our locale or laws;

5. Received legal counsel about the risks of personally guaranteeing a loan;

6. Been properly informed about
Jamaica's outdated bankruptcy law and how it punishes failure and makes
criminals out of risk-taking entrepreneurs;

7.
Received legal counsel on intellectual property ownership and
protection; and

8.Made trusted employees sign
disclosure and non-compete agreements.

It's said that
everyone hates lawyers until they need one. I'm not saying that lawyers
are always good for business or that all are created equal, but in many
cases, they can spare you the drama of courthouse and stressful legal
woes.

Last year, I wrote an open letter to the General
Legal Council regarding the problem of MSMEs having limited access to
affordable legal services and suggested how they could assist. Here's an
extract from my letter:

"In 2011, while on an
entrepreneurship development tour sponsored by the United States State
Department, I learned of a valuable programme in Washington, DC, in
which lawyers receive continuing legal education credits for providing
legal assistance to community-based non-profit organisations and
'small-business entrepreneurs' serving low-income communities or who are
economically disadvantaged.

"The Community Economic
Development Project, as it is called, offers legal counsel to low-income
tenant associations as well as legal assistance for current and
aspiring business owners in areas such as business formation, contracts,
taxation, leases, employment law, and others.

"The
project has been very successful in improving access to legal services
for residents of poor communities and struggling micro entrepreneurs who
learn how to navigate legal issues which may impede the growth and
resilience of their businesses.

"It is well known that
some of our micro businesses are hindered by their inability to afford
legal and accounting services. It is also known that Jamaica desperately
needs a boom in micro, small and medium-size businesses to spur real
economic growth.

"We are likely to benefit
tremendously from the implementation of a local CEDP, and the new
continuing legal education rules provide a timely opportunity to explore
this."

There has been no response to my
recommendation, but I'm sure many lawyers would agree that it would be a
cost-effective, impactful and rewarding way to earn some of their
continuing legal education credits.

I have also put
this proposal to the Jamaican Bar Association and remain hopeful that
they will consider it seriously.

One
love!

Yaneek Page is an entrepreneur and trainer in
entrepreneurship and workforce innovation. Email:yaneek.page@gmail.comTwitter: @yaneekpageWebsite:
yaneekpage.com